The significant increase in the Compensation Scheme of Last Resort (CSLR) funding levy, far exceeding the $20 million cap for the advice sector, has been heavily criticised by a number of professional bodies surprised at its scope and potential impact on practitioners.
The concerns about the ongoing cost of the scheme came as the government announced it would conduct a review into how it operates and its funding model, including the impact it has on the advice businesses that contribute to the levy.
SMSF Association chief executive Peter Burgess said the funding model was unstainable and inequitable, and a risk to the viability of the scheme and the advice sector.
“It is unacceptable that advisers should be expected to pay for the failures of firms such as Dixon Advisory Superannuation Services (DASS) and United Global Capital (UGC),” Burgess said.
“We support having the CSLR, but it’s important there is confidence that the scheme is meeting its objectives in a way that is sustainable for the industry and consumers.
“At a time when we are striving to make financial advice more accessible and affordable, the sector is being burdened with a CSLR scheme that punishes ethical advisers for the sins of a tiny minority.”
Financial Advice Association Australia (FAAA) chief executive Sarah Abood noted: “We are shocked to see an estimated figure of $70 million for the financial advice sector to cover the cost of claims in the 2025/26 financial year.
“This is an eye-watering figure in only the second year of operation for the CSLR and is substantially in excess of previous estimates.
“The two largest contributors to the cost, being DASS and UGC, are both clearly product failures and yet it is financial advisers who will pick up the entirety of the bill.
“If the government’s intention is to bankrupt financial advisers in every town and every suburb, and rapidly increase the already high cost of advice, this is an easy way to do it.”
Abood welcomed the announcement of a review, but noted the FAAA had provided Treasury and Financial Services Minister Stephen Jones with sufficient information to make them aware of problems with the CSLR and has also presented its concerns at the current Senate inquiry into the scheme.
Financial Services Council chief executive Blake Briggs said a decision on how to fund the increase in CSLR payments could not be put in place until 1 July 2025 so there was time to conduct a review, which should include whether consumers should be compensated where they have made capital gains.
“It does not align with community expectations that 80 per cent of the compensation being paid by the scheme has been for foregone, hypothetical capital gains, not the actual losses a consumer has incurred,” Briggs said.
